A cost center (in American countries) or cost center (in Spain) is a department&action=edit&redlink=1 "Department (business) (not yet written)") that generates costs for the organization, but only indirectly add benefit or utility. Typical examples of cost center departments may be:

The objective of cost accounting is the determination of cost, specifically the unit cost of the product produced, distributed or of providing a service.

Other objectives:

Generate information to measure utility.

Assess inventories.

Provide reports to help exercise administrative control.

Provide information for decision making.

Generate information to help management or inform operations planning.

Organizations may also choose to classify profit centers or investment centers. There are advantages to simply classifying the divisions of the organization as cost centers since with this the costs are more easily measurable. However, cost centers create incentives for managers to undervalue their units in order to benefit themselves. This underestimation can result in adverse consequences for the organization as a whole (e.g. reduced sales due to experiences of poor customer service).

Because cost centers have a negative impact on profit, they are one of the first divisions to be taken into consideration when personnel, budget cuts, or restructuring are carried out. Operational decisions in a Contact Center for example are based on cost considerations. Financial investments in new equipment, technology and personnel are difficult to justify before the Administration because they contribute to profits indirectly and their contribution is difficult to quantify.

Techniques are sometimes used to quantify the benefits of a cost center and relate the costs and benefits to those of the organization as a whole. In a Contact Center, for example, indicators such as service level, cost per call, and average call duration are used for this purpose.

Cost centers, on the other hand, serve the administration to have better budget control, by being able to measure each department or line of business, being able to obtain an income statement per business center and measuring each business unit in isolation.